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A Classroom Experiment on Banking

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  • Mary Mathewes Kassis
  • Denise Hazlett
  • Jolanda E. Ygosse Battisti

Abstract

This classroom experiment uses double oral auction credit markets to illustrate the role of banks as financial intermediaries. The experiment demonstrates how risk affects market interest rates in the presence of asymmetric information. It provides fodder for a discussion of the moral-hazard problem of deposit insurance and its impact on depositor and bank behavior. The basic experiment can be extended to include the effect of political risk on credit markets. The experiment can be used in principles, intermediate macroeconomics, or money and banking courses with 8--75 students. It takes 50--75 minutes to run, depending on class size, and requires no computers.

Suggested Citation

  • Mary Mathewes Kassis & Denise Hazlett & Jolanda E. Ygosse Battisti, 2012. "A Classroom Experiment on Banking," The Journal of Economic Education, Taylor & Francis Journals, vol. 43(2), pages 200-214, April.
  • Handle: RePEc:taf:jeduce:v:43:y:2012:i:2:p:200-214
    DOI: 10.1080/00220485.2012.660059
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    File URL: http://hdl.handle.net/10.1080/00220485.2012.660059
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    Cited by:

    1. Jonathan E. Alevy & Paul Ronald Johnson, 2013. "A Classroom Financal Market Experiment," Working Papers 2013-01, University of Alaska Anchorage, Department of Economics.

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